Thank you for the detailed explanation. I appreciate you taking the time to fully explore this concept.

1. Appendix IS - LM
Our lives are extremely dependent on how well the economic system works and
distributes its fruits to the member of the society. In an international perspective,
the world economy is a complex structure linking nations and peoples in an ever-
changing environment. How the economy works is a decisive question for
understanding nations' physiology and pathology, first essential step to diagnosis
and sanation.
Economic newspapers, official bodies' announcements, academic reflections
describe processes, suggest interpretations, support policies and remedies. There
you can find a burgeoning source of ideas in order to develop your own point of
view.
Questions may be:
• how can growth be triggered when everything goes wrong?
• what will be the effects of rising prices?
• how will booming exports impact the households?
Dody Zulfikar SE MM, zulfikar76@yahoo.com

2. The IS-LM model relies on positive and negative relationships
between macroeconomic variables. In order to describe the
subsequent changes provoked by an initial shock, you just read the
graph representation, following the arrows. You formally do not need
to know the reason why two variables go in the same or in the
opposite direction. The formal model and its graph representation
works without justifications.
Still, to economically understand what is happening, it is useful to
know the justifications, also in order to judge the strength and the
speed of the relationship.
Dody Zulfikar SE MM, zulfikar76@yahoo.com

3. IS - LM
Arrows express an influence
of the first variable on the
second one.
A sign quot;+quot; means that the
change in the first variable
provokes a change in the
same direction for the
second (quot;an increase give
rise to an incrementquot;).
By contrast, a sign quot;-quot;
shows that the change in
the second variable will be
in the opposite direction
(quot;a fall in.. will increase ..quot;).
Dody Zulfikar SE MM, zulfikar76@yahoo.com
Dody Zulfikar SE MM, zulfikar76@yahoo.com

4. The Rules
Variables, as consumption or exports, are put in rectangular frames. To reader's friendliness,
variables are in full names, not abbreviations or math symbols.
Links between variables are expressed through oriented arrows,
with changes in the first variable having an impact on the second.
A sign quot;+quot; means that the change in the first variable provokes a
change in the same direction for the second (quot;an increase give
rise to an incrementquot;, quot;higher ... give rise to higher ...quot;).
By contrast, a sign quot;-quot; shows that the change in the
second variable will be in the opposite direction (quot;a
fall in the employment will increase unemploymentquot;).
An increase of the first variable will eventually
provokes a fall of the third, after producing a rise
in the second.
Dody Zulfikar SE MM, zulfikar76@yahoo.com

5. Export Led Growth
The rise of real interest rate is a turning point.
Dody Zulfikar SE MM, zulfikar76@yahoo.com

6. Export Led Growth - The rise of real interest rate is a turning point.
Thus, expansionary
monetary policy
risks to provoke
inflation and a
further need for
money supply
expansion.

7. Export Led Growth
Other things equal, an increase of export will trigger an increase of income.
an increase of consumption, since households are richer. Consumption growth, in turn, implies a further
increase of income (Keynesian multiplier);
The growing income helps the households, by increasing their savings;
The growing income helps the State, by widening the tax base, thus the tax revenue. At normal levels of
public expenditure, this means a reduced deficit or even a surplus for the State budget;
it increases imports
it also produces an increase of the real interest rate, given a fixed real money supply, which in turn depends
on a deliberate choice of the central bank not to increase the nominal money supply (not to print money, not
to allow more credit from banks to the economy).

8. Export Led Growth
The rise of real interest rate depresses investment, which in turn brakes the income growth.
The increase in the real interest rate has the further effect of increasing the nominal exchange rate, by attracting foreign capital.
Thus the real exchange rate rise as well. With stronger domestic currency, not only imports will further rise but also the exports
will be restrained.
If the central bank acts and keep the interest rate under control, everybody is happy: investment stay at the same level so as the
exchange rate, leaving room for export to continue their growth.
Prolonged GDP growth boost employment, as we said, and this reduces unemployment.
To the extent wages are dependent on unemployment, they will rise as well, increasing the cost of production. This will exert a
pressure on firms to rise prices - both in competitive and monopolized markets. Inflation becomes a real risk.
The increase of price level reduces the real money supply: by definition the latter is nominal money supply divided by price
level.
Unless the central bank further increases the nominal money supply, the real interest rate will rise, with all its unpleasant
consequences on export and investment.
Unfortunately, the price level increase is already braking exports by strengthening the real exchange rate, given a stable world
price level.
In other words, inflation is damaging exports by increasing the price of domestic goods in foreign terms, even in the event of a
fixed nominal exchange rate or an expansion of money supply that keep the real interest rate stable.

9. If price level is extremely responsive to
unemployment, then the task of the central bank is
very difficult, since the export-led growth is in
danger from different points of attack.
In synthesis, an export-led growth is possible but it
requires a careful policy of control in side effects
that can menace to erode the basis of the same
spurring element: exports.
Crucial is the responsiveness of the variables to
changes in the other values. If investment is not
really influenced by the interest rate (either exports
by the exchange rate), the export-led growth is
clearly easier to manage.
Dody Zulfikar SE MM, zulfikar76@yahoo.com

10. Looking again at the graph, the export-led growth will be stronger and more sustainable:
i) the larger the share of exports on GDP;
ii) the stronger the Keynesian multiplier;
iii) the less the interest rate reacts to income;
iv) the less the exchange rate reacts to the interest rate;
v) the less investment reacts to the interest rate;
vi) the less exports are responsive to exchange rate;
vii) the less are wages are responsive to unemployment;
viii) the less prices are responsive to wages;
ix) the less imports are responsive to income.
We started our story from an increase of exports. But what could
have provoked it?
A first answer would be a growing foreign GDP with the widening
foreign imports it implies. Another would be the opening of new
markets for domestic goods abroad, due to marketing efforts of
exporters.
Furthermore, it is possible that the export dynamics is the target of
conscious economic policies.
To the extent export-led growth is strong, a careful fiscal policy
promoting export may be a cute move, since tax revenue will rise
throughout the growth.
Alternatevely , a pre-emptive expansionary policy by the central
bank could provoke an export increase through international price
competitiveness of the country, improved by a devaluation,
prompted by the fall of interest rate, due in turn to the increase in
nominal (and real) money supply decided by the central bank.
Dody Zulfikar SE MM, zulfikar76@yahoo.com

11. Tq.
In short, an export-led growth can be triggered
by external and internal reasons, accompanied
and braked by internal conditions. As an
alternative to export-led growth, domestic
pulled growth has been proposed as having
several advantages in this paper.